SEC Chief Concerned About Information Overload for Investors

U.S. regulators should review the federal rules governing how public companies disclose financial data to ensure investors don't suffer from "information overload," the top U.S. securities regulator said on Tuesday.

"I am raising the question ... as to whether investors need and are optimally served by the detailed and lengthy disclosures about all of the topics that companies currently provide in the reports they are required to prepare and file with us," Securities and Exchange Commission Chairwoman Mary Jo White said in a speech before the National Association of Corporate Directors.

"We must continuously consider whether information overload is occurring as rules proliferate and as we contemplate what should and should not be required to be disclosed going forward."

In a wide-ranging speech about corporate America's reporting rules, White raised questions about whether certain disclosures are duplicative, obsolete or should be tailored to be more industry-specific to sectors such as mining.

She touched on numerous types of disclosures ripe for review, from historical share closing prices and the ratio of earnings to fixed charges, to litigation risks, cyber security attacks, and executive compensation, among others.

White's comments come as the SEC works to complete a study of the financial reporting rules for all public companies to see if changes are warranted.

That regulatory regime, known as Regulation S-K, requires companies going public to register their shares and routinely disclose financial results and material facts about the company, as well as other information.

The study is required by a 2012 law that relaxes securities regulations to help smaller emerging companies go public and raise additional capital.

Although the bulk of the law is geared toward helping small business growth, the inclusion of the study signaled that Congress wanted the SEC to look beyond small companies and consider the rules for all public companies.

White said Tuesday she expects the results of the study will be made public "very soon."
She added that the study will only be the first step toward a broader review of the reporting requirements.

Among the questions she said the SEC should ask include "whether there are specific disclosure requirements that are simply not necessary for investors or that investors do not want."

For instance, she noted that the rise of the internet and social media means investors can more readily access information required in financial reports, such as dilution disclosure, the ratio of earnings to fixed charges and historical share closing prices.

In the case of litigation risks a company faces, for example, she said the information is often repeated in multiple documents.

"We should simply figure out what investors want and whether such repetition is really such a burden for companies. Perhaps more importantly, we need to ask whether we need to harmonize these requirements," she said.

It is still unclear exactly what kind of impact White's remarks will have, and whether the SEC will have the bandwidth to tackle a financial reporting overhaul.

It is already struggling to complete numerous other requirements of the 2010 Dodd-Frank Wall Street reform law.

In her speech, she touched on some of the corporate governance rules mandated by Dodd-Frank, including a regulation that requires companies to let shareholders cast non-binding votes on executive compensation.

She said executive compensation disclosure requirements have been revised numerous times over the years, and now at times can amount to more than 40 pages.

She did not specifically call for reforms in this space, saying the disclosures "are a good thing." At the same time, however, she also warned "we should be careful not to have too much of a good thing."

In brief comments to reporters on the sidelines of Tuesday's event, she also elaborated on her views on cyber-security disclosures.

In 2011, amid a rash of security breaches at major U.S. companies, the SEC issued guidance meant to help companies decide when it is appropriate to disclose such attacks.

Since then, some experts have said the guidance lacks teeth and called for strict reporting rules amid concerns companies are still failing to disclose attacks.

But White said she does not see a need for mandated reporting on cyber attacks.

"At this point I don't see a need for a rule," she said. "We are pleased with the guidance and what has flowed from the guidance."

She added, however, that the SEC will still monitor how the guidance is working to see if a rule may be needed down the road.

U.S. regulators should review the federal rules governing how public companies disclose financial data to ensure investors don't suffer from "information overload," the top U.S. securities regulator said on Tuesday.